A couple who are already married may decide to enter into an agreement that shows what they intend to happen to their money and property if their marriage were to end. This often happens where there has been a separation followed by a reconciliation. The legal rules about these agreements come from the laws that apply to divorce, and also a decision of the Supreme Court in 2010 (Radmacher v Granatino) where the court said: ‘The court should give effect to a nuptial agreement that is freely entered into by each party with a full appreciation of its implications unless in the circumstances prevailing it would not be fair to hold the parties to their agreement’.
Why enter into a post-nuptial agreement?
Everyone has their own reasons for entering into a post-nuptial agreement. It may be that they simply like to be as organised as possible with their finances. Entering into a post-nuptial agreement does not mean parties have decided to get divorced. A post-nuptial agreement might be particularly beneficial where:
- one of the parties has substantially greater capital or income than the other
- one or both of the parties wishes to protect assets they owned prior to the marriage, including inheritances or family trusts
- it would be beneficial to define what is considered to be ‘matrimonial property’ or ‘non-matrimonial property’
- the parties may wish to protect assets for the purposes of inheritance planning
- the parties may each have a connection with, or property in, another jurisdiction
Are post-nuptial agreements binding on the court?
In England and Wales post-nuptial agreements are not automatically legally binding in the event of a later divorce, but the terms of a post-nuptial agreement may be decisive in the event of a dispute dealt with by the court unless the effect of the agreement would be unfair. It is not possible in England and Wales to have a fully binding agreement about what will happen on divorce. In other countries, post-nuptial agreements may be binding provided certain requirements are met and where there is an international element advice will need to be sought from a specialist lawyer in that jurisdiction.
To improve the prospect that the court will not consider the agreement to be unfair if it is necessary to rely on it, both parties will need to set out their financial circumstances in full and take both independent legal advice on the agreement and its effects. Parties can negotiate the agreement by using solicitors to negotiate and draft the terms of the agreement based on the discussions between themselves.
Agreements are generally less likely to be considered to be unfair if they are recent, or if circumstances have not changed since the agreement was entered into, and if both people knew exactly what they were agreeing to when the agreement was made, both legally and financially, without undue pressure being applied. For this reason, properly negotiated post-nuptial agreements are most likely to be upheld by the court on divorce. It is common to build in provision for the agreement to be reviewed, either after a period of time has elapsed (say three years or five years) or when a specified ‘trigger’ event occurs, for example if either party were to have health issues that impacted on their earning capacity, or if a child of the relationship was born.
It is also possible that the court might uphold part of an agreement while considering a different part to have an unfair effect.
Even though post-nuptial agreements are not always binding, you should not enter into a post-nuptial agreement unless you intend to be bound by the terms of that agreement.
What can a post-nuptial agreement include?
A post-nuptial agreement is a bespoke document drawn up for the two parties based on their particular circumstances, so it can cover almost anything you want it to (although we will be able to advise you as to what types of provision are likely to be enforceable), and the focus of the agreement will be on finances. There are certain things that couples usually think about when deciding how they would like to arrange their finances in the event of a separation or divorce:
- what will happen to property that either of you brought into the marriage
- what will happen to the family home
- what will happen to any property given to you or inherited during the marriage or any income or assets derived from trusts
- what will happen to money held in joint accounts and any property purchased jointly
- what will happen to any personal belongings or possessions owned before your marriage, or acquired during the marriage
- what will happen to any saved money earned during the marriage
- what will happen to your pensions
- how will you deal with any debts
- will either of you pay or receive any maintenance and, if so, for how long
- what kinds of events may require the agreement to be reviewed
- what kinds of arrangements you wish to make for any children you have, or are likely to have, both in financial and in practical terms
What are the advantages and disadvantages of a post-nuptial agreement?
A post-nuptial agreement can give more certainty as to financial arrangements in the event that parties divorce, provided the agreement is entered into in accordance with the suggested steps as to legal advice and disclosure, and represents a fair arrangement for both parties. It can be an effective way to protect assets that parties may have had prior to the marriage.
However, because the court will always have jurisdiction in the event of a divorce, entering into a post-nuptial agreement can sometimes provide a false sense of security. If there is a divorce, and parties cannot reach agreement about how finances can be dealt with, and neither party no longer wishes to proceed in accordance with the terms of the post-nuptial agreement, the issues may need to be determined by the court, although where the court considers the terms of the post-nuptial agreement to be ‘fair’, it may make an order reflecting the terms of the agreement.
There is little advantage in agreeing terms that will be unfair to one party, particularly if that party has been placed under pressure to agree those unfair terms, hasn’t had independent legal advice or doesn’t have sufficient information (financial disclosure) to make an informed decision on whether to enter into the agreement. In those circumstances the court would be unlikely to consider the agreement to be ‘fair’, although there have been cases where all of the recommended steps haven’t been followed but a post-nuptial agreement has still been upheld by the court. Often this will turn on the extent to which the party who no longer agrees with the terms understood what they were agreeing to.
Circumstances can change, and in the event of a dispute the court will look at the parties’ circumstances as they are at the time the agreement is being considered by the court. What may have been fair at the time of the agreement might not be considered fair if either of the parties’ circumstances have changed significantly, for example if one of them has a reduced earning capacity, or one of them has suffered ill health, and the agreement hasn’t provided for those changes either in its original form or by an amended agreement. For this reason it is sensible to include provision in the agreement for there to be either regular reviews, or reviews in the event of certain events occurring.
What will happen if one party no longer wishes to be bound by the terms of a post-nuptial agreement?
If, in the event of a divorce, one of the parties no longer wishes to be bound by the post-nuptial agreement, but the other person does, that person may make an application to the court for the other party to explain why an order should not be made in the terms of the agreement. Whether the court will uphold the agreement will depend on the factors detailed above, but it is for this reason also that a party should not enter into a post-nuptial agreement unless they intend to be bound by the terms of that agreement.
If you are thinking about entering into a Post-Nuptial Agreement, please contact us today. We are experts in the drafting and negotiating of these types of agreements and can assist you in preparing a bespoke agreement to meet whatever your needs are.